What’s Driving US Stocks Towards a Third Stellar Year?

The close of the year finds global markets at a rare crossroads, with U.S. stocks delivering exceptional returns while volatility, political uncertainty and shifting economic forces continue to test investor confidence. What has unfolded over the past twelve months is a complex story of resilience, risk and recalibration across asset classes.

U.S. markets approach a historic milestone after years of exceptional gains

The U.S. stock market now stands close to accomplishing a milestone witnessed only rarely in contemporary finance: logging three straight years of robust double-digit gains. As the year winds down, leading indexes showcase a persistent upswing that has withstood broad skepticism and repeated predictions of an impending slump. This trajectory positions the current market phase among the most remarkable since the mid-20th century, prompting comparisons with earlier periods of economic growth, technological transformation and evolving monetary strategies.

At the center of this milestone stands the S&P 500, which is poised to finish the year with a gain of roughly 17%. This follows two already remarkable years, with advances of more than 20% in each. Such consistency is rare, particularly given the backdrop of geopolitical tension, trade policy uncertainty, inflation concerns and one of the longest government shutdowns on record. Yet the market’s ability to absorb shocks and continue climbing has become a defining characteristic of this period.

A rally propelled by solid earnings and rising confidence in technology

Corporate earnings strength has remained a key force powering the prolonged climb in equities, as many U.S. companies continued posting healthy profits despite earlier periods of elevated borrowing costs and persistent worries about consumer spending. This enduring earnings performance has served as a solid underpinning for advancing stock prices, offering support for valuations that some observers have argued appear somewhat stretched.

Investor sentiment has been heavily influenced not only by earnings but also by the growing excitement surrounding artificial intelligence. Since late 2022, when generative AI tools first captured public attention, tech companies involved in data processing, cloud services and AI-driven solutions have experienced a surge in interest. This energy has persisted throughout the current year, as investors have wagered that U.S. companies are poised to steer the upcoming wave of technological advancement.

While worries about an AI-fueled bubble occasionally emerged, especially during periods of sharp market swings, the overarching storyline stayed consistent, as most market participants determined that AI’s long-run productivity improvements could sustain stronger growth and profitability despite unavoidable short-term volatility.

Market turbulence challenges confidence yet does not halt momentum

The year was far from smooth. Periods of sharp market swings reminded investors that optimism alone does not eliminate risk. Early in the year, concerns emerged after new developments in global AI competition raised questions about whether investment levels in the sector were justified. Equity markets briefly retreated, reflecting a reassessment of assumptions that had driven valuations higher.

Later in the spring, volatility intensified as trade policy announcements sent shockwaves through global markets. The introduction of sweeping tariffs reignited fears of disrupted supply chains and slower global growth. Equity indexes experienced some of their most dramatic daily moves since the pandemic era, and measures of market fear surged to levels not seen in years.

Despite these challenges, the market showed an impressive ability to regain momentum, and as policy rhetoric eased and investors recalibrated their outlook, equities surged. By midyear, major indexes had recovered their earlier losses and advanced to fresh highs, highlighting the resilience that has defined this cycle.

Diverging performances among major U.S. indexes

While the broader market advanced, performance varied across indexes and sectors. The technology-heavy Nasdaq Composite once again outpaced its peers, delivering gains exceeding 20% and continuing a multi-year trend of leadership. This dominance reflected both the concentration of AI-related companies within the index and the broader appeal of growth-oriented stocks during periods of easing monetary policy.

The Dow Jones Industrial Average, often seen as a barometer of established blue-chip companies, also posted a strong year. Despite experiencing notable swings during periods of policy uncertainty, the index ultimately reached a series of record highs, reflecting renewed confidence in industrial, financial and consumer-facing firms.

Taken together, these results underscore a market that has responded positively to both innovation-led expansion and established corporate resilience, even as shifting sector rotations have repeatedly reshaped leadership.

Bonds, rates and the recalibration of expectations

Equity markets were not the only area of focus for investors. The bond market, which influences borrowing costs throughout the economy, underwent its own adjustment as expectations around interest rates evolved. After significant volatility earlier in the year, Treasury yields settled into a narrower range, reflecting a growing belief that the Federal Reserve was nearing the end of its tightening cycle.

The benchmark 10-year Treasury yield moved lower throughout the year, reducing pressure on mortgage rates and giving a lift to interest-sensitive areas of the economy. Longer-term bonds, however, painted a more intricate picture, as enduring inflation worries and debates over long-run fiscal stability kept yields higher at the distant end of the curve, highlighting persistent uncertainty in the broader economic outlook.

This environment reinforced the delicate balance policymakers face as they attempt to manage inflation without undermining growth, a challenge that remains central to market expectations heading into the coming year.

Currency weakness reshapes global investment flows

One of the defining features of the year was the decline of the U.S. dollar. Measured against a basket of major currencies, the dollar experienced its weakest performance in several years. This shift reflected a combination of factors, including lower interest rates, concerns about policy stability and changing expectations for U.S. economic growth.

A softer dollar carried wide-ranging consequences, diminishing the attractiveness of dollar-based assets for international investors and leading them to reevaluate their global portfolio strategies, while simultaneously enhancing the gains of U.S. investors with holdings abroad, which helped drive robust results across international equity markets.

The drop in the currency additionally influenced commodity markets, since prices generally move counter to the dollar, enhancing gains across multiple asset categories.

Precious metals gain momentum during turbulent times

Among the year’s most notable shifts was the remarkable showing of precious metals, with gold standing out by posting some of its most impressive annual gains in decades as investors, seeking protection from inflation, weakening currencies, and global tensions, propelled the metal to unprecedented highs before it eased slightly near the close of the year.

Silver, often overshadowed by gold, delivered an even more dramatic performance. Supported by both investment demand and industrial use in renewable energy and electric vehicles, silver prices soared, reflecting the metal’s dual role as a store of value and a critical input for emerging technologies.

Other precious metals such as platinum and palladium saw notable appreciation, highlighting a wider move toward tangible assets amid economic instability.

Commodities reflect a mixed global outlook

Beyond precious metals, commodity markets painted a more complex picture of global demand and supply dynamics. Copper, widely viewed as a bellwether for industrial activity, recorded its strongest gains in more than a decade. Rising demand from infrastructure projects and clean energy initiatives, combined with trade-related uncertainty, supported higher prices.

Oil markets, by contrast, experienced pronounced volatility before ending the year lower. Geopolitical tensions periodically pushed prices higher, but concerns about slowing growth and ample supply ultimately weighed on the market. Other commodities followed varied paths, with agricultural products reflecting shifting climate conditions and evolving supply expectations.

These contrasting patterns underscore how irregular the global recovery remains and reveal the hurdles confronting both producers and consumers.

International markets outperform amid shifting dynamics

While U.S. equities delivered impressive returns, several international markets surpassed them. In Asia, strong gains were fueled by technology investment and renewed confidence in regional growth prospects. European markets also benefited from increased government spending and improved economic sentiment, particularly in sectors tied to defense and infrastructure.

The weaker U.S. dollar amplified these gains for investors holding foreign assets, reinforcing the importance of diversification in a changing global landscape. As capital flows adjusted, international equities gained renewed attention from portfolio managers seeking opportunities beyond U.S. borders.

Digital assets face a volatile conclusion

The cryptocurrency market went through a turbulent year, swinging from swift surges to a pronounced downturn as it unfolded; Bitcoin hit unprecedented highs earlier in the year when regulatory moves and policy cues hinted at wider approval of digital assets, yet by the close of the year, momentum weakened as investors secured profits and overall market uncertainty prompted a noticeable retreat.

The uneven results highlighted how cryptocurrencies continue to evolve, remaining acutely vulnerable to changes in market mood, regulatory actions and overall liquidity, and although interest in this asset class endures, the year ultimately reinforced the inherent risks tied to developing markets.

Anticipating the future following an exceptional market milestone

As the year draws to a close, the U.S. stock market appears poised for a landmark milestone, showcasing remarkable durability and the ability to adjust to shifting conditions, though the same forces that fueled the surge—advances in technology, looser monetary policy and strong investor sentiment—also introduce risks that remain impossible to overlook.

The year ahead will show whether the current momentum endures or whether the market moves into a consolidation phase, and for investors, the experiences of the past three years emphasize the need for balance, patience, and a clear grasp of the forces shaping global markets.

What remains clear is that this period will be studied for years to come, not only for its returns but for the way markets navigated uncertainty and emerged stronger than many anticipated.